Ryder Reports Second Quarter 2022 Results

Second Quarter 2022

• GAAP EPS from continuing operations of $4.72 versus $2.78 in prior year driven primarily by significantly higher results in Fleet Management Solutions
• Comparable EPS (non-GAAP) from continuing operations of $4.43 versus $2.40 in prior year
• Total revenue of $3.0 billion and operating revenue (non-GAAP) of $2.3 billion up 27% and 20%, respectively, reflecting organic revenue growth in all business segments and Supply Chain Solutions acquisitions

Full-Year 2022 Forecast

• Increased GAAP EPS forecast to $14.45 - $14.95 from $13.23 - $14.23
• Increased comparable EPS (non-GAAP) forecast to $14.30 - $14.80 from $13.40 - $14.40
• Adjusted ROE (ROE) forecast revised to 25% - 26% from 24% - 26%
• Net cash provided by operating activities from continuing operations forecast of $2.3 billion; free cash flow (non-GAAP) forecast increased to $750 million - $850 million reflecting lower expected lease capital expenditures due to OEM delays

Ryder System, Inc. (NYSE: R), a leader in supply chain, dedicated transportation, and fleet management solutions, reported results for the three months ended June 30 as follows:

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Ryder is a leader in supply chain, dedicated transportation, and fleet management solutions. (Photo: Business Wire)

Total and operating revenue for the three months ended June 30 were as follows:

CEO Comment

Commenting on the company's results and outlook, Ryder Chairman and CEO Robert Sanchez says, "Record performance in the second quarter reflects earnings growth in all three business segments. Earnings were higher than our most recent forecast due primarily to better than expected results in rental and SCS. We generated record ROE of 28% reflecting ongoing truck capacity constraints in the market as well as continued benefits from initiatives to increase returns and drive higher core earnings. We also realized record new contractual sales year-to-date which positions us well for future revenue growth.

"We continue to execute on our strategy to create long-term shareholder value by accelerating growth in SCS and DTS while improving returns through the cycle in FMS. The accretion from our recent SCS acquisitions in fast-growing e-commerce fulfillment and multi-client warehousing was above our expectations in the quarter. SCS and DTS results improved sequentially reflecting higher prices to address unusually high labor cost increases as well as the impact from profitable new business. As we have largely completed implementing these rate increases, we are confident that SCS and DTS earnings will be at their high single-digit targets in the second half of the year, with DTS already achieving that level in the second quarter.

"Pricing initiatives in our contractual supply chain, dedicated, and lease businesses are contributing to higher core earnings which positions Ryder to deliver on our long-term targets over the cycle. In FMS, earnings continued to benefit from our multi-year lease pricing initiative as expected and we anticipate incremental earnings from this initiative as the remaining half of our lease portfolio is renewed at higher returns.

"Used vehicle market conditions remain strong despite a modest decline in sequential tractor pricing, consistent with our expectations. We continue to anticipate that the historically strong used vehicle sales and rental market environment will moderate in the second half of the year, with slower freight growth partially offset by ongoing tight market capacity. Residual value estimates are at historically low levels, which we expect to significantly reduce the likelihood of incurring losses on used vehicle sales or the need for additional depreciation.

"Looking ahead, we've increased our 2022 ROE and comparable EPS forecasts to reflect improved rental and SCS performance. Due to OEM delivery delays, we expect to defer approximately $200 million of planned lease capital to 2023. As such, we have increased our free cash flow forecast to $750 - $850 million and now expect our ending lease fleet in North America to be up approximately 2,000 vehicles.

"Our strong balance sheet enables us to pursue targeted acquisitions and investments, and return capital to shareholders. We expect to complete our $300 million accelerated share repurchase program no later than October and have existing authorization for an additional 2-million-share discretionary program and a 2.5-million-share anti-dilutive program. In addition, our board recently approved a 7% increase to our quarterly dividend, which has been paid without interruption for more than 46 years."

Outlook Updates

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Second Quarter Business Segment Operating Results

Fleet Management Solutions: Higher Earnings Driven by Used Vehicle Sales and Rental Results

Fleet Management Solutions (FMS) total and operating revenue increased due to higher rental revenue driven by strong demand and higher pricing. Total revenue also increased from higher fuel prices passed through to customers.

FMS EBT increased by $127 million primarily from higher used vehicle sales and rental results reflecting benefits from tight truck capacity and initiatives to improve returns in these areas. Lease pricing and maintenance costs initiatives also contributed to higher results. Increased gains on used vehicles sold and a declining impact of depreciation expense from prior vehicle residual value estimate changes contributed $84 million in higher year-over-year earnings. Used vehicle pricing increased significantly from the prior year for both trucks and tractors. Sequentially from the first quarter of 2022, used truck pricing increased 9%; however, used tractor pricing declined 5%. Used vehicle inventory levels increased sequentially to 4,200 vehicles and remains below the company's long-term target range of 7,000 - 9,000 vehicles. Rental results benefited from record second quarter power-fleet utilization of 85% (up from 80% in the prior year) and a 6% increase in power-fleet pricing. FMS EBT as a percentage of FMS operating revenue is well above the company's long-term target of low double-digits for the second quarter and for the trailing 12-month period.

Supply Chain Solutions: Higher Earnings Reflect Revenue Growth Partially Offset by One-Time Charges

Supply Chain Solutions (SCS) total and operating revenue increased due to acquisitions and double-digit revenue growth in all industry verticals from new business, higher volumes, and increased pricing. Operating revenue grew 23% organically year-over-year.

SCS EBT increased primarily due to revenue growth from new business, higher pricing, and acquisitions. This increase was partially offset by customer accommodation charges, bad debt, and incentive-based compensation costs. SCS EBT as a percentage of SCS operating revenue is below the company's long-term target of high single-digits for the second quarter 2022 and the trailing 12-month period.

Dedicated Transportation Solutions: Higher Earnings Driven by Increased Pricing and New Business

Dedicated Transportation Solutions (DTS) total and operating revenue increased due to new business, pricing, and volumes.

DTS EBT increased primarily due to pricing, new business, and gains on sales of used vehicles, partially offset by strategic investments. DTS EBT as a percentage of DTS operating revenue is in line with the company's long-term target of high single-digits for the second quarter 2022 but below target for the trailing 12-month period.

Corporate Financial Information

Unallocated Central Support Services (CSS)

Unallocated CSS costs were $24 million as compared to $18 million in the prior year, primarily reflecting increased professional fees and incentive-based compensation costs.

Income Taxes

Our effective income tax rate from continuing operations was 29.0% as compared to 26.5% in the prior year due to incremental U.S. tax on higher foreign earnings related to the exit of our UK FMS business. Our comparable effective income tax rate (a non-GAAP measure) from continuing operations was 26.8% as compared to 26.5% in the prior year.

Capital Expenditures, Cash Flow, and Leverage

Year-to-date capital expenditures increased to $1.3 billion in 2022 compared to $963 million in 2021 due to higher planned investments in the lease fleet.

Year-to-date net cash provided by operating activities from continuing operations was consistent with the prior year at $1.1 billion, reflecting higher earnings partially offset by higher working capital needs. Free cash flow (a non-GAAP measure) was $551 million, down from $602 million in 2021 primarily due to an increase in capital expenditures, partially offset by higher proceeds from the sale of revenue-earning equipment, including the sale of UK vehicles related to our exit plan. The free cash flow forecast for 2022 was increased to a range of $750 million - $850 million from $550 million - $650 million, reflecting deferred capital expenditures related to OEM vehicle delivery delays.

Debt-to-equity as of June 30, 2022 decreased to 233% from 235% at year-end 2021 and is below the company's long-term target of 250% - 300%.

Share Repurchases and Dividends

Ryder expects to complete its $300 million accelerated share repurchase program no later than October 2022. Board authorization exists for a 2-million-share discretionary program and a 2.5-million-share anti-dilutive program.

In July 2022, the board declared a regular quarterly cash dividend of $0.62 per common share, an increase of 7% compared to the cash dividend Ryder had been paying since July 2021. This represents Ryder's 184th consecutive quarterly cash dividend.

Fleet Management Solutions UK Business Update

The company has made significant progress in exiting the lower-return UK business and remains on track to complete the process by mid-2023. Since the beginning of 2022, Ryder has sold approximately half of the UK vehicles and properties, generating proceeds of $205 million.

Supplemental Company Information

Second Quarter Net Earnings

Business Description

Ryder System, Inc. is a leading supply chain, dedicated transportation, and fleet management solutions company. Ryder’s stock (NYSE: R) is a component of the Dow Jones Transportation Average and the S&P MidCap 400^® index. The company’s financial performance is reported in the following three, inter-related business segments:

• Supply Chain Solutions – Ryder’s SCS business segment optimizes logistics networks to make them more responsive and able to be leveraged as a competitive advantage. Globally-recognized brands in the automotive, consumer goods, food and beverage, healthcare, industrial, oil and gas, technology, and retail industries rely on Ryder’s leading-edge technologies and world-class logistics engineers to help them deliver the goods that consumers use every day.

• Dedicated Transportation Solutions – Ryder’s DTS business segment combines the best of Ryder’s leasing and maintenance capability with the safest and most professional drivers in the industry. With a dedicated transportation solution, Ryder helps customers increase their competitive position, reduce risk, and integrate their transportation needs with their overall supply chain.

• Fleet Management Solutions – Ryder’s FMS business segment provides a broad range of services to help businesses of all sizes, across virtually every industry, deliver for their customers. From leasing, maintenance, and fueling, to rental and used vehicle sales, customers rely on Ryder’s expertise to help them lower their costs, redirect capital to other parts of their business, and focus on what they do best – so they can grow.

For more information on Ryder System, Inc., visit investors.ryder.com and ryder.com.

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Note: Regarding Forward-Looking Statements

Certain statements and information included in this news release are “forward-looking statements” under the Federal Private Securities Litigation Reform Act of 1995, including our forecast, expectations regarding market trends and economic environment; impact of supply chain and labor shortage challenges and vehicle production constraints on our business, market conditions, e-commerce trends, freight environment, expected earnings, depreciation, commercial rental demand and utilization, and used vehicle sales volume and pricing; expectations related to our strategic investments and initiatives, including our recent supply chain acquisitions and initiatives related to maintenance costs savings and improving returns; expected benefits of lease pricing initiatives and our ability to renew leases; our expectations regarding benefits from our accelerated share repurchase program; our expectations related to timeline and cash proceeds from our exit of the FMS U.K. market; our ability to execute our strategy of accelerating growth in certain business segments; performance, including sales and revenue growth, in our product lines and segments, for example e-commerce and multi-client warehousing; residual values and depreciation expense; used vehicle inventory; earnings; free cash flow; tax rate; operating cash flow; capital expenditures; fleet growth; and expected benefits from new contracts and pricing initiatives in our supply chain and dedicated business divisions. Our forward-looking statements also include our estimates of the impact of our changes to residual value estimates on earnings and depreciation expense. The expected impact of the change in residual value estimates is based on our current assessment of the residual values and useful lives of revenue-earning equipment based on multi-year trends and our outlook for the expected near- and long-term used vehicle market. A variety of factors, many of which are outside of our control, could cause residual value estimates to differ from actual used vehicle sales pricing, such as changes in supply and demand of used vehicles; volatility in market conditions; changes in vehicle technology; competitor pricing; regulatory requirements; driver shortages; customer requirements and preferences; and changes in underlying assumption factors.

All of our forward-looking statements should be evaluated by considering the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those in the forward-looking statements. Important factors that could cause such differences include, the effect of the COVID-19 pandemic and future variants, including ongoing supply chain and labor challenges and vehicle production constraints; the effect of geopolitical events, including the impact of the conflict between Russia and Ukraine; our ability to adapt to changing market conditions, including lower than expected contractual sales, decreases in commercial rental demand or utilization, poor acceptance of rental pricing, and declining market demand for or excess supply of used vehicles impacting current or estimated pricing and our anticipated proportion of retail versus wholesale sales; declining customer demand for our services; higher than expected maintenance costs; lower than expected benefits from our cost-savings initiatives; our ability to effectively and efficiently integrate acquisitions into our business; lower than expected benefits from our sales, marketing and new product initiatives; setbacks in the economic market or in our ability to retain profitable customer accounts; impact of changing laws and regulations; difficulty in obtaining adequate profit margins for our services; inability to maintain current pricing levels due to soft economic conditions, business interruptions or expenditures due to labor disputes, severe weather or natural occurrences; competition from other service providers, changes in technology and new entrants; driver and technician shortages resulting in higher procurement costs and turnover rates; impact of worldwide semiconductor shortage; higher than expected bad debt reserves or write-offs; decrease in credit ratings; increased debt costs; adequacy of accounting estimates; higher than expected reserves and accruals particularly with respect to pension, taxes, insurance and revenue; impact of changes in our residual value estimates and accounting policies; unanticipated changes in fuel prices; unanticipated currency exchange rate fluctuations; increases in inflation or interest rates; our ability to manage our cost structure; and the risks described in our filings with the Securities and Exchange Commission (SEC). The risks included here are not exhaustive. New risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risks on our business. Accordingly, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Note: Regarding Non-GAAP Financial Measures

This news release includes certain non-GAAP financial measures as defined under SEC rules. Refer to Appendix - Non-GAAP Financial Measure Reconciliations at the end of the tables following this press release for reconciliations of the non-GAAP financial measures contained in this release to the nearest GAAP measure and why management believes that presentation of each measure provides useful information to investors. Additional information regarding non-GAAP financial measures as required by Regulation G and Item 10(e) of Regulation S-K can be found in our most recent Form 10-K, Form 10-Q and our Form 8-K filed as of the date of this release with the SEC, which are available at http://investors.ryder.com.

CONFERENCE CALL AND WEBCAST INFORMATION

Ryder’s earnings conference call and webcast is scheduled for July 27, 2022 at 11:00 a.m. ET. To join, click here.

Financial = ryder-financial

USA = ryder-usa

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